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American Shipper

Iron highway gridlock

Midwest rail shippers step up lobby of STB for improved service across network.

   The year 2014 is turning into the year of rail service issues, with the U.S. Surface Transportation Board, and now Congress, trying to find a way to compel railroads to alleviate bottlenecks while placating shippers from various industries, all of whom want improved service immediately. 
   On Sept. 4, in a crowded ballroom at a Hilton Garden Inn in Fargo, N.D., the STB gathered yet again to talk about the challenges facing the railroads and shippers that stem from stronger than anticipated agricultural demand and increased energy transportation. Forty speakers — among them shippers and shipping groups from the agriculture and energy industries — addressed the board.  And they may actually be getting some results. Representatives from BNSF and Canadian Pacific also attended. 
   After the hearing, STB Chairman Daniel Elliot provided a summary to the Senate, which is looking into rail service issues separately. Elliot wrote that new regulations may be needed to ease some of the problems reported by shippers throughout the year.    
   “I also believe that any such action should not benefit one industry at the expense of others, or spur unintended negative consequences,” he added. 
   The board held a hearing in April to cover many of the same issues, but challenges remained, and shippers wanted answers. During that April hearing, they had seen the board implement procedures and checks to ensure the unrestricted and timely movement of grain by BNSF and CP; agriculture shippers had presented a problem, and the board had set out to solve it. But in the ensuing months, energy suppliers became frustrated, and started asking for their own board-mandated checks and balances on railroads. To ease the commodity bickering and try to solve the issues once and for all, the board set up a hearing in the field to gather as much intelligence as possible about rail service issues. 
   Bob Zelenka, executive director of Minnesota Grain and Feed, told the board that poor service by BNSF and CP have cost grain elevator operators millions of dollars. These users have lost product because they have had to find alternative storage methods, while at the same time losing revenue because grain hasn’t been delivered on time. Contract penalties and higher interest loans due to poor performance on their part has cost these users a lot of money, he said. 
   Rail shipment of oil has compounded problems for grain shippers, Zelenka said. He told the board that North Dakota oil field volume growth has forced agriculture shipments to the sidelines and “oil traffic has appeared to be receiving priority from both carriers.”
   He continued, “While grain elevators have waited weeks and even months to receive service, with the severe winter being blamed by the rail carriers as the main culprit, oil trains seem to have been moving steadily throughout the winter and spring, unabated by weather or other constraints, such as, a shortage of crews and/or locomotives.”
   Jerry Cope, president of the South Dakota Grain and Feed Association, concurred with Zelenka’s frustration. He said that while progress has been made toward the significant backlog experienced in South Dakota, “needing a train every five days and getting one every 10 days jeopardizes the ability to clean out for this fall’s harvest.”
   Cope said if rail service doesn’t improve, the issues will simply compound. He asked for the board to consider making it easier for shippers to bring grievances against railroads, continued reporting by railroads regarding services, and that one-on-one communication between railroads and shippers needs to be encouraged. Cope was mindful, though, that more regulations may not be the answer, and shippers from a number of industries are facing the same issues.
   “We are not asking for direct government intervention and we are not asking for preferential treatment for grain,” he said. “We just want to ensure that we are not disadvantaged or that grain is marginalized in the rail freight picture.” 
   During the September hearing, Tim Rogelstad, president of Otter Tail Power Co., told the board at his plant in Big Stone City, S.D., BNSF had not hit its service promises in 2013 and pledged to do a better job this year, but still failed to deliver. In fact, the railroad told him the service situation wouldn’t improve until after 2016.
   Currently, Rogelstad said he’s facing “below-normal” stockpiles of coal due to service bottlenecks, and acknowledged that only through constant communication with BNSF has the power company been able to avoid the “single-digit stockpile levels that other plants have reported.”
   Rogelstad said the company had to implement coal conservation efforts this summer because of poor service, reducing the plant’s capacity by 20 percent. He said the plant has gone the coal conservation route before, reducing its output five times in the past eight years because of a lack of coal. 
   “What is equally concerning is that the true severity of the current situation is being masked not only by the moderate summer weather but also by the actions taken by the utility coal shippers themselves — primarily coal conservation but also hauling coal by truck and switching to alternate fuels,” he said in a prepared statement. “These actions, intended to protect our customers’ interests in the long term, not only come at higher cost to customers but also enable the BNSF to be more confident in its claims that it will not allow plants to run out of coal.”
   Rogelstad called for the STB to put in progress report measures concerning BNSF’s coal delivery to help ensure the railroad is on track with its improvements.  
   In written comments about rail service issues delivered after the hearing, officials at Xcel Energy expressed many of the same complaints as Rogelstad about Xcel’s facilities in Becker, Minn., and plants in Colorado and Texas that are serviced by BNSF. 
   “BNSF has been delivering approximately 65 percent of our monthly nominations for these facilities, and cycle times have increased an average of 48 percent for our Texas-bound trains and 67 percent for our Colorado-bound trains,” Xcel’s Thomas Imbler wrote to the board. “To put this in perspective, since July 1, 2014, our Texas inventories have declined by nearly 510,000 tons, and our Colorado inventories at the impacted station have declined by 625,000 tons.”
   Bob Kahn, general manager of the Texas Municipal Power Agency, told the board much the same story at the September hearing. 
   “In light of BNSF’s service challenges,” he said, “TMPA’s member cities have already incurred over a million dollars in costs to deploy energy conservation methods, which preclude Gibbons Creek from running on an economical basis, in order to minimize coal burn and build or just protect inventory.”
   Even after the meeting, comments and letters kept rolling in to the STB. On Sept. 11, the Western Organization of Resource Councils called for the board to “protect grain farmers and other agricultural shippers now being squeezed off the rails to make room for more and more oil trains. It’s time to slow down the rush to pump oil to send to the East and West coasts, so that there is still room for wheat and other agricultural commodities our economy depends on.” 
   The group cited a North Dakota State University study that found North Dakota farmers could lose $100 million in 2014 because of rail service issues. 
   The antecedents for this debate began during the end of last year, when STB Chairman Elliott said he saw a downward trend in rail service levels at the same time as increased shipper complaints. This led to more outreach to shippers, letters from board members to the heads of Class I railroads that seemed to be having the most service issues, and public hearings. 
   The railroads responded to these complaints with issues of their own, which included unforeseen demand increases, a shortage of crew members, major gateway congestion, track capacity constraints, and a lack of locomotives. Railroad officials also told the board that poor winter weather was a huge player in getting 2014 off on the wrong foot.  
   “Agricultural, coal, and chemical shippers, in particular, were reporting various service-related problems, including the inability to obtain empty railcars; potential shut-down scenarios due to delayed delivery of critical raw materials; lost business due to logistical constraints; and, the need to divert freight from rail to other modes,” he explained in the Senate letter. “Although most Class Is were involved, the problems were reported as being acute on the Canadian Pacific Railway and BNSF Railway Co. networks.”
   In the end, many participants at the September hearing asked the STB to take a more robust role in the issue, continued reporting from railroads, and some increased forecasting and planning information. Elliot agreed that something needs to be done. Congress recently weighed that topic, considering giving the STB more leverage to act in these situations.
   The Surface Transportation Board Reauthorization Act of 2014, introduced by Sens. Jay Rockefeller, D.-W.Va., and John Thune, R-S.D., would, among other things, expand the board’s membership by two people and give the agency more investigative authority when looking into rail service issues. 
   “While the Surface Transportation Board has made good faith efforts to address concerns of freight shippers and railroads, the current inefficiencies in the STB’s operations are symptomatic of the need for common-sense reform,” Thune said when announcing the bill. “The modest bill that Chairman Rockefeller and I are introducing addresses many of the key inefficiencies and time delays I hear about from shippers by reforming the case review process. With additional reforms, the STB can better assist shippers and railroads alike, helping to ensure rail service problems are addressed in a balanced and timely manner.”

This article was published in the October 2014 issue of American Shipper.

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